Want to Maximize Long-term Wealth? Consider These Career Moves
When we think about building wealth, we often think about saving more. Or investing more.
And it's true -- those are certainly two valuable components in any wealth creation strategy. Yet it's important that we don't give short shrift to the most critical variable of all -- how much we earn.
This, more than anything else, determines everything that follows. Which is why it's surprising that so many of us are hesitant to enhance our earning power. We passively accept the same salary, with marginal increases, for years on end. Or we fail to use our leverage to find a more lucrative position.
With that in mind, let's talk about a few career moves designed to maximize your long-term wealth.
The truth about salary
Given the incredible importance our salaries play in our lives, it's odd that we don't give the subject more thought. A few compelling facts:
- The first ten years of your career are vitally important. Research has shown your career earnings are largely determined before you're 40.
- How much you earn is directly tied to how much salary growth you'll see. A study by the Federal Reserve of New York showed that the average worker sees a salary increase of 38-percent from 25 to 55. Workers who earn in the top five percent will see salary growth of 230-percent. The top one-percent of workers? Their salary grows by more than 1,400-percent over those three decades.
- The largest of these increases happen early, within the first half of your career. Earnings start to stagnate after 35. Ten years later they actually decline.
For many of us, this is sobering information -- especially if you've been complacent about increasing your earning power. The window starts closing fairly rapidly.
Yet all is not lost, even if you turned 40 quite some time ago. There is still time to enhance your income -- and your long-term financial prospects. You just need to move quickly and decisively.
The value of mobility
Around 100 years ago, a concept began taking root in Japan. The idea was simple -- companies and workers would benefit from permanent employment. One worker, one job, one lifetime. A cradle-to-grave employment scenario.
Workers -- and employers -- enjoyed the stability the system brought. After World War II, as Japan's industries were rebuilt, the concept became extremely widespread. Layoffs and firings eventually became social and corporate taboos.
The system, however, began to show cracks as Japan's economy slowed. Many companies needed to get leaner. Today, lifetime employment is declining rapidly. Yet that's not necessarily a bad thing for Japanese workers. Mobility means more competition for skilled employees. That, in turn, means higher wages.
It's a lesson many workers here would do well to internalize. Even the most talented employees are often undervalued by their employers. Sometimes this is simply because salary increases are, as a matter of company policy, tied to a percentage of your current pay. So if you're already underpaid, your increase will reflect this.
Savvy workers always have one eye on the next job -- if only for leverage purposes. By starting at a new company, you can earn a higher base pay package -- with larger raises forthcoming. Remember, multiple studies have shown that staying in one position too long can depress your lifetime earnings.
How much is too much?
Changing jobs is a proven income enhancer. Yet someone who changes jobs too frequently may be viewed negatively. Potential employers may fear they'll invest time and money only to watch you jump to a competitor.
As a general rule, you should only switch jobs every three to four years. Anything more and you're likely to be perceived as an opportunist of dubious loyalty -- rather than a worker in high demand.
Boosting your lifetime income is a critical aspect of wealth creation. Here are a few steps to consider:
- Negotiate a salary increase. Be prepared to explain precisely why you're worth the money. You'll need to establish where and how you add value.
- Research salaries at comparable companies for similar positions. You'll need to quantify your value.
- Have a precise figure in mind. Avoid vagueness or speaking in general terms. Identify a number and provide supporting evidence.
- Be aware of the timing. If the company is in dire financial straits, it's probably a bad time.
- Examine other employment opportunities ahead of time. Nothing strengthens your hand like a competing offer.
- If your salary isn't increasing sufficiently, it's time to consider moving on. Staying in a suboptimal job too long can seriously harm your career earning potential.
- Don't become a job-hopping mercenary. It's bad for your reputation, and many employers won't touch you.
Large, regular salary increases are a primary component of any wealth building strategy. By making the right moves today, you can reap the benefits of more lucrative employment for years to come.